TLTRO hangs over euro

EUR/USD can’t step out of the TLTRO shadow and GBP/USD nudges higher, while traders’ eyes remain on the eurozone.

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David Madden

2014-12-12T08:49:38+0000

Source: Bloomberg

EUR/USD downtrend intact

EUR/USD has been trading within a tight range over night, and several attempts were made to break through the $1.24 level, but the confidence was lacking.

The poor uptake of the TLTRO is still hanging over the euro, and traders are looking to the European Central Bank for additional stimulus. In my opinion the uptake of €129.84 billion was enough to dispel QE speculation in the near term but it wasn’t high enough to totally eradicate it. The ECB bulletin pointed out that the purchase of covered bonds and ABS will last for another two years, and traders can expect an additional six rounds of TLTRO’s between now and June 2016.

The eurozone industrial production and the University of Michigan consumer sentiment at 10am and 2.55pm (London time) respectively, are the economic highlights of the day.

The downward trend on EUR/USD remains intact, but some of the pressure has come off the single currency as QE chatter has cooled. The $1.23 level remains the target to the downside and any rallies are likely to run into resistance at the 50 day-moving average of $1.2510.

GBP/USD upward moves fragile

GBP/USD has had little to stimulate it in the previous session as all eyes were on the ECB. While the focus was on the euro GBP/USD managed to edge higher, but the upward move seems to be fragile. Excluding the construction output data at 9.30am (London time), we are not anticipating any economic data from the UK today.

The US dollar basket finished higher yesterday after three consecutive days of losses, and this could be the beginning of the move higher for the greenback after its post-non-farm payrolls pullback.

Looking to next week the Bank of England stress test results and the Federal Open Market Committee meeting will be the centre of traders’ attention. The UK stress test is expected to be more rigorous than the European equivalent that was conducted in October, and this could highlight cracks in the UK’s financial sector.

As Alastair McCaig stated, if the phrase ‘considerable time’ is omitted from the Fed statement it could be the hawkish signal that traders are looking out for.

We are seeing a lot of consolidation in the $1.57 region, and a move lower is likely to find support in the $1.5640 region. In the near term I feel that $1.58 is out of reach.

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